U.S.
      SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      DC


20549










FORM
      10-QSB




/X/
      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
      FOR THE QUARTERLY PERIOD ENDED March 31, 2007





/
      /
      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934





Commission
      file number: 001-32134





Z
      TRIM
      HOLDINGS, INC.





(Exact
      Name of Small Business Issuer as Specified in Its Charter)







ILLINOIS
            36-4197173(State
                or Other Jurisdiction ofIncorporation
                or Organization)
            (I.R.S.
                Employer Identification
                No.)









1011
      CAMPUS DRIVE, MUNDELEIN, ILLINOIS 60060





(Address
      of Principal Executive Offices)





(847)
      549-6002


(Issuer's
      Telephone Number, Including Area Code)





Check
      whether the issuer: (1) filed all reports required to be filed by
      Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes /X/ No /
 /





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes / / No /X/





The
      registrant has a single class of common stock, par value $.00005 per share, of
      which
      there were 63,688,371 shares issued and outstanding as of May 4,
      2007.





Transitional
      Small Business Disclosure Format (Alternative 2): Yes / / No
      /X/





PART
      I -
      FINANCIAL INFORMATION





**ITEM
      1**. FINANCIAL STATEMENTS





See
      Consolidated Financial Statements beginning on page F-1.





**ITEM
      2.** MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION





THE
      FOLLOWING DISCUSSION IS INTENDED TO ASSIST IN UNDERSTANDING THE FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS OF Z TRIM HOLDINGS, INC. YOU SHOULD
      READ THE FOLLOWING DISCUSSION ALONG WITH OUR FINANCIAL STATEMENTS AND RELATED
      NOTES INCLUDED ELSEWHERE IN THIS FORM 10-QSB. THE FOLLOWING DISCUSSION CONTAINS
      FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS, UNCERTAINTIES AND ASSUMPTIONS.
      OUR ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS IN 2007 AND BEYOND MAY
      DIFFER MATERIALLY FROM THOSE EXPRESSED IN, OR IMPLIED BY, THESE
      FORWARD


LOOKING
      STATEMENTS.





**OVERVIEW**





Z
      Trim
      Holdings, Inc. which changed its name from Circle Group Holdings, Inc. in 2006,
      is an emerging growth company focused on the production, licensing, marketing
      and distribution of its proprietary and patented technology, Z Trim. Z Trim(R)
      is a natural food ingredient that is currently used by food manufacturers,
      restaurants, and consumers to replace up to 50% of fat and calories without
      changing taste, texture, appearance or digestive properties in baked goods,
      dairy products, snacks, deserts, sauces, dressings, processed meats and many
      other foods. Z Trim is dedicated to transforming the multi-billion dollar
      processed food industry in its fight to create healthier, lower-fat,
      lower-calorie products.





Z
      Trim is
      also available as an Appetite Control formula that is 100% natural dietary
      fiber
      made from the bran of grain and delivered in a cellulose capsule. The new
      breakthrough product has great absorption capacity resulting in a feeling of
      fullness and a reduction in appetite thus allowing consumers to continue
      enjoying eating without sacrifice. Z Trim Appetite Control was recently shown
      in
      clinical studies to improve weight loss without causing any gastrointestinal
      or
      other negative side effects.





For
      decades, the industry has taken steps to try to make foods with less calories
      for the dieting consumer. They have been able to replace sugar and other
      sweeteners with modest success but have had little success replacing fat,
      usually creating products that don't taste very good. Sugar replacements such
      as
      saccharin, NutraSweet(R) and Splenda(R) can be found everywhere in our foods
      and
      eating habits. These food technologies have made their way into our soft drinks,
      snacks, cookies and our home cooking. We believe that Z Trim, as a fat
      replacement, has the potential to become as commonplace in our eating as sugar
      substitutes, and it will do this while still maintaining the original taste
      of
      the foods.




As
      a
      marketing driven company with a unique technological base, Z Trim's mission
      is
      to establish a new paradigm in fiber rich, lower calorie, reduced saturated
      fat
      products that promote health beyond basic nutrition. By reducing the fat and
      calories from fat by up to 50% in foods without sacrificing taste or texture,
      Z
      Trim represents a quantum breakthrough in food science and
      technology.





2


After
      years of development, Z Trim is now commercialized. The Company currently
      manufactures and markets Z Trim as an affordable ingredient technology that
      dramatically improves the industry's nutritional promise. The Company's primary
      objective in 2007 is to build on Z Trim's early successes in various food
      products and studies, with the target goal of establishing it as an important
      ingredient in revolutionizing the food industry in a manner analogous to
      NutraSweet(R). The Company is targeting the end consumer through (i) proposing
      licensing agreements and direct sales to major food manufacturers and several
      small to mid size companies, (ii) direct sales to the
      consumer, and (iii) direct sales to large food institutions such as those that
      supply to restaurants, hospitals, schools and
      cafeterias.





**PLANT
      USAGE SALES SCENARIOS**





In
      a 12
      month period, the Mundelein Z Trim plant can currently produce an estimated
      one
      million pounds of finished Z Trim powder at 25x absorption. This could also
      equate to 25 million pounds of Z Trim Gel at 4% solids. The Company has no
      way
      at this time of knowing exact amounts of each product but anticipates it will
      produce a combination of 25x Z Trim Powder and 4% solids Z Trim Gel. Below
      are
      various uses of that available production capacity supply. The Company already
      sells to all 9 channels in varying percentages and expects that trend to
      continue as it grows however with little predictability of how much will be
      sold
      to each area in the future.





1)
      Industry Manufacturer sales of Z Trim Boxed Powder (22 pounds) at $120 (current
      price @ $5.5/lb) 45,454 boxes (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential Gross
      Revenue: $5,500,000.





2)
      Industry Manufacturer sales of Z Trim Gel (one gallon) at $2.5 (current price @
      $0.3/lb) 3,000,000 gallons (assuming total utilization of all available production
      capacity supply for only this channel). Total Annual Potential Gross Revenue:
      $7,500,000.





3)
      Institutional User sales of Z Trim Gel (one gallon) at $5.00 (current price
      @ $0.6/lb)
      Schools, Universities, Hospitals, Hotels, Restaurants 3,000,000 gallons (assuming
      total utilization of all available production capacity supply for only this
      channel). Total Annual Potential Gross Revenue: $15,000,000.





4)
      Consumer Retail sales of Appetite Control Capsules at $29.95 (current bulk price
      at
      web site) 3,600,000 bottles (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential Gross
      Revenue: $107,820,000.





5)
      Consumer Retail sales of Appetite Control Capsules at $14.00 (wholesale price to
      large
      retailers) 3,600,000 bottles (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential Gross
      Revenue: $50,400,000.





6)
      Consumer Retail sales of Z Trim Fat Replacement at $3.99 (current bulk price at
      web
      site) 25,000,000 bottles (assuming total utilization of all available production
      capacity supply for only this channel). Total Annual Potential Gross Revenue:
      $99,750,000.





7)
      Consumer Retail sales of Z Trim Fat Replacement at $2.00 (wholesale price to large
      retailers) 25,000,000 bottles (assuming total utilization of all available production
      capacity supply for only this channel). Total Annual Potential Gross Revenue:
      $50,000,000.





3


8)
      Consumer Retail sales of Z Trim Fiber Supplement (8 ounce) at $34.95 (current price
      at
      web site) 2,000,000 packs (assuming total utilization of all available production
      capacity supply for only this channel). Total Annual Potential Gross Revenue:
      $69,900,000.





9)
      Consumer Retail sales of Z Trim Fiber Supplement (8 oz) at $15.00 (wholesale price
      to
      large retailers) 2,000,000 packs (assuming total utilization of all available
      production capacity supply for only this channel). Total Annual Potential
      Gross Revenue: $30,000,000.





**Product
      Description**





Z
      Trim is
      an all natural ingredient made from plant fiber, essentially an amorphous
      cellulose gel. Based on a novel processing system that converts crude fiber
      grain components into cereal hydro-colloidal compositions, Z Trim is rich in
      soluble and insoluble fiber, devoid of fat and calories, neutral in taste and
      totally compatible in texture with foods that in which it is used. In concrete
      terms, this patented, proven ingredient system can significantly improve the
      health benefits of foods without compromising the taste delivery and mouth-feel
      properties of full-fat products that are critical to consumers and the market
      share belonging to the brands of every major food company.




Z
      Trim
      was developed at the U.S. Department of Agriculture by Dr. George Inglett.
      The
      goal was to create a zero-calorie healthy natural food ingredient utilizing
      grain bi-products that would replace a large portion of high calorie fats in
      processed foods. The Company holds the exclusive United States and international
      manufacturing and marketing rights to the technology for all fields of use.
      The
      Company spent the past five years and approximately 14 million dollars
      perfecting its patented and trade secret formulas, a state-of-the-art
      manufacturing facility and marketing rollout for production and use. The Company
      has dozens of U.S. and international patents issued and pending on the Z Trim
      composition and process as well as numerous trade secrets relating to this
      proprietary technology. Processes based upon the Company's intellectual property
      portfolio are now in use at the Z Trim plant located in Mundelein,
      Illinois.




Several
      consumer studies have been performed on Z Trim by independent focus groups,
      home
      use tests, state fairs and staged events at restaurants, and in the media that
      have been broadcast on NBC, CBS, WGN and FOX. All the results taken as a
      collective grouping have consistently demonstrated that people cannot tell
      the
      difference between a full fat food and the same recipe replacing up to 50%
      of
      the fat with Z Trim. Seven out of ten consumers consistently chose Z Trim as
      the
      full fat version or the better tasting version.




Z
      Trim
      adds water to recipes, so it improves textures resulting in creamier, moister,
      and juicier foods. The additional water also has the effect of cleansing the
      palette thereby diminishing aftertastes of fats such as greasiness and
      filminess. Lastly, Z Trim is healthy soluble and insoluble fiber. Fiber has
      been
      shown to improve satiety and contribute to other benefits such as weight loss,
      lowering of cholesterol and improvement of glycemic index.





4


We
      have
      four operating subsidiaries: Fiber-Gel Technologies,Inc., thebraveway.com,
      Inc.,(operating as The Brave Way Training Systems), On-Line Bedding
      Corp., and Z-Amaize Technologies, Inc.




Z
      Trim
      Holdings has accumulated a substantial Intellectual Property Portfolio for
      its
      products and technologies including patents, trademarks, trade secrets and
      licensed rights. This portfolio will provide the company with the protection
      needed as it moves forward in the competitive business environment. Additional
      intellectual property will be added to the portfolio as advances in the existing
      technologies and new technologies are developed.





**SUBSIDIARIES**





**FIBERGEL
      TECHNOLOGIES, INC.**





FiberGel
      owned the exclusive, worldwide license for all fields of use to Z Trim,
      an
      all-natural, agricultural-based fat replacement developed by the Agricultural
      Research Service of the United States Department of Agriculture ("USDA").
      The Company acquired FiberGel, formerly a wholly-owned subsidiary of Utek
      Corporation ("Utek"), on August 27, 2002. Under the terms of the acquisition,
      we issued 2,800,000 shares of our common stock to Utek valued at $504,000
      using an average market price of $0.18 per share. We also issued a three
      year warrant to Utek to purchase 500,000 shares of our common stock at an exercise
      price of $0.36 per share of which such warrants were fully exercised in 2004.
      Z
      Trim Holdings, Inc. owns the exclusive U.S. and international rights to Z
      Trim,
      and Z Trim is currently our primary focus.





The
      Company is currently making and shipping product to satisfy its customers'
      orders and product sample requests. Swiss based conglomerate DKSH, the
      company's distributor under exclusive limited territorial rights in Europe, Asia,
      Australia and South America has been purchasing Z Trim and providing current
      and potential customers with product samples and other product related assistance
      for both Z Trim and their newly developed non-GMO (Genetically Modified
      Organisms) Oat versions of Z Trim. The raw material oats are beingacquired
      through a distributor from Quaker Oats.





**NAT
      TOOLS FOR GOOD HEALTH**





We
      acquired the worldwide exclusive license to the NAT Web, the Nutrition Analysis
      Tool ("NAT") website developed by the Department of Food Science and Human
      Nutrition at the University of Illinois. The University of Illinois' NAT website
      is an interactive, web-based system designed to empower individuals to select
      a
      nutrient-rich diet. This fully functional nutrient analysis program utilizes
      the USDA nutrient database, including over 6,000 foods as well as information
      from food companies. NAT provides information on the relative composition
      of food and could aid consumers in their quest to achieve or maintain
      good health via nutritious eating.





Pioneered
      and developed by Dr. James Painter at the University of Illinois in
      1995,
      and a winner of several awards, the Nutritional Analysis Tools and System
      ("NATS") is based upon the behavioral scientific discoveries that keeping track
      daily of what we eat, plus how many calories we burn through fitness activities,
      are among the most critical components in achieving and sustaining long-term
      successful weight loss and health management. Using data provided by the
      USDA
      and most brand name food companies, NAT'S users can keep track every day
      of
      the foods, calories, fats, proteins, carbohydrates and other nutrients they
      consume. New members can join MyNATS for free and save all their menus on the
      NATS
      database. Non-members can use NATS 2.0 to save all their data to their own
      computers for free offline reference. NATS users can calculate calories burned
      during the day. The web site provides visitors the ability to enter a certain
      activity and the amount of calories they wish to burn, and then calculates
      how long the given activity needs to be done. Visitors can also enter how
      long
      they did an activity and the web site calculates how many calories they burned
      or
      which activities a person can do to burn a certain amount of calories in
      a
      given length of time.





5


The
      acquisition of the socially conscious NATS site is very significant to us
      because it has the potential to provide us with a large consumer audience,
      as it
      attracts as many as two million visitors per month from more than eighty countries.
      We are increasing awareness about our Z Trim products and their benefits
      to consumers who visit the NATS website. Visitors to the site can also purchase
      Z Trim products, a pedometer based diet program, and Palm OS software versions
      of the NATS site that they can use when on the go. We are planning to expand
      the number of products being offered on the web site in 2006 to include cooperative
      advertising and marketing of healthy, calorie and fat reduced Z Trim products
      launched by food industry partners.





**BRAVE
      WAY TRAINING SYSTEMS**





The
      Brave
      Way Training Systems, another of our wholly owned subsidiaries, is
      a
      security training and product company. The Brave Way offers proven, highly effective,
      low-cost self-defense courses and videos with a uniquely targeted curriculum
      focusing on personal safety and self-defense including rape prevention.
      Courses are offered for police officers and security personnel through
      The Brave Way's state certified law enforcement training for students and
      teachers, individuals, Airline Personnel, Hospital personnel, through park districts,
      clubs, churches and other organizations as well as corporations. The Brave
      Way
      instructors have experience in multiple martial arts, and backgrounds in
      martial arts, security, self-defense, and the military.




**ON-LINE
      BEDDING CORP.**





On-Line
      Bedding Corp. ("On-Line Bedding"), another of our wholly-owned subsidiaries,
      founded in 1981, is a distributor of pillows, blankets and other bedding
      products to airlines, hospitals, government, and other commercial and institutional
      customers. On-Line Bedding subcontracts the production of pillows, blankets
      and other bedding products to manufacturers. On-Line Bedding's customers
      include hospitals, nursing homes, hotels and motels, and transportation-based
      companies such as airlines, railroads and motor coach companies.
      On-Line Bedding purchases its raw materials from various suppliers, and
      contracts production of its airline pillows and blankets with third party manufacturers.
      On-Line Bedding warehouses a limited inventory, and drop ships its
      products from manufacturers or wholesale suppliers in multiple locations throughout
      the United States to reduce freight costs for its customers. On-Line Bedding's
      primary accounts include AMTRAK, as well as certain domestic and international
      airlines. In addition, the United States Armed Forces regularly purchases
      a specialty pillow from On-Line Bedding through the United States military's
      electronic invoice system. On-Line Bedding is also an authorized pillow
      and related product vendor for a hospital purchasing group with over 500 members
      in eight states.





**OPERATING
      SEGMENTS**





We
      operate three reportable segments, food product development, defense product
      development, and e-tailer.





6


Our
      management reviews the operating companies' income to evaluate segment performance
      and allocate resources. Our operating companies' income for the reportable
      segments excludes income taxes and amortization of goodwill. Provision
      for income taxes is centrally managed at the corporate level and, accordingly,
      such items are not presented by segment since they are excluded from
      the
      measure of segment profitability reviewed by our management.




For
      financial data on the reportable segments, you should refer to the Consolidated
      Financial Statements and the notes thereto.





**CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**





This
      Report on Form 10-QSB contains forward-looking statements within the meaning
      of
      Section 27A of the Securities Act of 1933 ("Securities Act"), as amended, and
      Section 21E of the Securities Exchange Act of 1934, as amended. These statements
      involve known and unknown risks, uncertainties and other factors that may cause
      our actual results, performance or achievements to differ, perhaps materially,
      from any future results, performance or achievements expressed or implied by
      the
      forward-looking statements. Forward-looking statements include, but are not
      limited to, statements about:





o
            Our
                product development efforts;





o
            The
                commercialization of our products;





o
            Anticipated
                operating losses and capital
                expenditures;





o
            Our
                estimates regarding our needs for additional
                financing;





o
            Our
                estimates for future revenues and profitability;
                and




o
            Sources
                of revenues and anticipated revenues, including contributionsfrom
                corporate collaborations, license agreements and othercollaborative
                efforts for the development and
                commercialization of ourproduct
                candidates, and the continued viability and duration of thoseagreements
                and efforts.





In
      some
      cases, you can identify forward-looking statements by terms such as "may,"
      "will," "should," "could," "would," "expect," "plan," anticipate," "believe,"
      "estimate," "project," "predict," "intend," potential" and similar expressions
      intended to identify forward-looking statements. These statements reflect our
      current views with respect to future events and are based on assumptions and
      subject to risks and uncertainties. Given these uncertainties, you should not
      place undue reliance on these forward-looking statements. We discuss many of
      these risks in greater detail in the foregoing section under the heading "Risk
      Factors." Also, these forward-looking statements represent our estimates and
      assumptions only as of the date of this Annual Report.




You
      should read this Report and the documents that we reference in this
      Report with the understanding that our actual future results may be materially
      different from what we expect. We do not intend to update any of these
      statements or to publicly announce the result of any revisions to any of these
      forward-looking statements. We qualify all of our forward-looking statements
      by these cautionary statements.




7


**RECENT
      MATERIAL DEVELOPMENTS**





On
      February 22, 2007 we announced that this year's fiscal sales(calendar 2007)
      of Z
      Trim for January and the first 21 days of February surpassed the Z Trim product
      sales for calendar year 2006, which were $103,269.00 and the achievement of
      significant progress in its business plan implementation. The company attributes
      the improvement to strategic marketing coinciding with increased demand by
      consumers and growing use by food producers.





In
      the
      4th quarter of 2006, the Company surveyed its existing customer base and was
      provided projections of their anticipated utilization of Z Trim for the calendar
      year 2007. The total of those projections, if achieved, is estimated to consume
      the company's current plant capacity on a run-rate basis by year end 2007.
      With
      the potential for exceeding the existing plant capacity becoming a realistic
      late 2007 target, the Company is presently in various discussions with custom
      food ingredient companies to manufacture Z Trim in plants within the continental
      United States as well as internationally.





The
      Company now has three distinct venues it markets and sells to:





*
      1st
      Tier.....Food Processors & Manufacturers


*
      2nd
      Tier.....Food Service (Schools, Restaurants, Hospitals, Hotels)


*
      3rd
      Tier.....Direct to Consumers, Consumer Retail





These
      Tiers all present totally different opportunities, but each offer unique and
      substantial market leverage if maximized.





On
      May 4,
      2007, the Company announced that its Z Trim Appetite Control Capsules can now
      be
      purchased at select GNC retail stores and from the GNC web site. This is one
      of
      the important steps in the Company's planned retail rollout to make Z Trim
      products accessible to people everywhere. Many foods are engineered to break
      through our natural resistance to over-eating. Z Trim contributes to a
      satisfying feeling of fullness and provides a simple way to reduce caloric
      intake. Lowering calories is widely regarded as the key to successful weight
      management. This is why Z Trim Appetite Control is such a critical new product
      in gaining control over the battle between personal sacrifice and our eating
      enjoyment. With Z Trim, people can enjoy eating and still improve their
      health.




Z
      Trim
      Appetite Control® is 100% natural dietary fiber made from the bran
      of
      corn and delivered in a vegetarian cellulose capsule. This breakthrough
      product has superior absorption capacity resulting in a feeling
      of fullness and a reduction in appetite thus allowing consumers to continue
      enjoying eating without sacrifice. Z Trim Appetite Control has been
      shown in clinical studies to improve sustainable weight loss without lifestyle
      change and without causing any gastrointestinal or other negative side
      effects. Z Trim should be considered by people who are not maximizing success
      with their existing weight management approach, as well as for those
      who
      cannot take stimulant based products for various health reasons. Z
      Trim
      Appetite Control Capsules, are available as part of a healthy multi-disciplinary
      approach.  8




On
      May 3,
      2007, the Company reported that by letter dated April 27, 2007, the American
      Stock Exchange ("AMEX") notified Z Trim Holdings, Inc. (the "Company") pursuant
      to Section 1009(a)(i) of the AMEX Company Guide (the "Guide") that the Company
      was not in compliance with AMEX's continued listing standards as a result of
      the
      issuance of 879,996 shares of restricted common stock upon exercise of a warrant
      without prior listing approval, contrary to Section 301 of the Guide. The letter
      constitutes a "Warning Letter" and does not cause the initiation of a de-listing
      procedure or result in the suspension of trading in the Company's common stock.
      The Company has resolved the Section 301 violation by rescinding the transaction
      giving rise to the issuance of the shares in question.





On
      May 1,
      2007, Z Trim Holdings, Inc. hired Alan Orlowsky as the Company's Chief Financial
      Officer. Mr. Orlowsky has served as a member of the Company's Board of Directors
      since January 2004 and most recently was the Chairman of the Company's Audit
      Committee and a member of the Company’s Compensation Committee. Mr. Orlowsky
      resigned those positions as of April 30, 2007. Dana Dabney, the Company's prior
      CFO, remains employed as Vice President and remains on the Company's Board
      of
      Directors. Mr.
      Orlowsky is moving into the CFO position at an important time of growth and
      expanding opportunity for the Company and his hiring is seen by the Company
      as a
      strategic benefit to operations going forward.




Mr.
      Orlowsky, age 58, received his B.S. in accounting from the University
      of Illinois in Champaign and upon graduation passed the C.P.A. exam.
      He
      then earned his law degree at IIT Chicago-Kent College of Law and passed
      the Illinois bar exam in 1975. Following
      graduation from law school, Mr. Orlowsky worked at the I.R.S. in
      the
      Estate and Gift Tax Division. During his tenure with the I.R.S., Mr. Orlowsky
      was also adjunct professor of Accounting, Taxation and Business Law
      at
      Northeastern Illinois School of Business. He left the IRS to accept a
      position with Deloitte & Touche as a tax professional and subsequently joined
      the faculty of Loyola University of Chicago School of Business where he
      taught
      Taxation and Accounting and opened his own practice. The
      Company's Board of Directors has appointed Brian Israel, age 49, to fill
      the
      vacancy created by Mr. Orlowsky's departure. In addition, Mr.


Israel
      will serve as a member of the Compensation Committee and the Audit Committee,
      which he will Chair. Mr.
      Israel has spent more than 20 years in the real estate finance industry,
      during which he managed teams responsible for production, operations,
      risk management, product and policy development, technology and project
      management functions for a major national lender and a large regional
      commercial bank.




Mr.
      Israel has long been active in legislative and consumer advocacy, is
      a
      former President of the Illinois Mortgage Bankers Association and has served
      on
      a variety of mortgage-related advisory bodies including the Federal
      Home Loan Mortgage Corporation's Affordable Housing Advisory Council
      and Regional Lender Advisory Board, and the Illinois Department of Financial
      and Professional Regulation's Residential Mortgage Advisory Board.




Currently,
      Mr. Israel provides strategic planning, training and project management
      services to businesses and non-profit entities as an independent consultant.
      He also serves as President of North Shore Custom Homes, Ltd., as
      a
      Mentor with Big Brothers and Big Sisters of Metropolitan Chicago, as a member
      of
      the Chicago Hospitality Resource Partnership Advisory Council and as
      President of the River North Residents Association. Mr.
      Israel will stand re-election at the Company's 2007 annual meeting of
      shareholders. By that time the Company also expects Mr. Orlowsky and an additional
      outside director will have joined the board; bringing the total number
      of
      Directors to eight.


9





On
      April
      16, 2007, the Company announced that at any of the 69 food service operations
      in
      the Volusia County, Florida Public School system's award-winning "School Way
      Cafe," students can choose from an assortment of baked goods made with or
      without Z Trim. Based on taste alone, they overwhelmingly prefer the reduced
      fat
      items with Z Trim.




Innovating
      for better tasting, healthier foods in the cafeterias of the 58th
      largest school district in the country has been a primary objective of Volusia
      County School Food Service Director Jon Dickl since he was hired by the
      district in early 2007.




Since
      late January, school food service operations in Pennsylvania, Massachusetts,
      and Florida have begun actively using Z Trim gel in baked goods,
      dressings and mayo. Many more are testing the product, as are foodservice
      operations in hospitals.




Z
      Trim
      underwent a thorough review prior to use at Volusia schools. An evaluation
      phase was conducted by a certified research chef comparing Z Trim recipes to
      Control recipes. New and traditional menu items were prepared for tasting by
      school officials. A tasting panel consisting of students was formed as well.




Chef
      Costa Magoulas, CEC, CCE, Coordinator of Culinary Operations, reformulated
      all bakery items made on premises by replacing percentages of the
      butter, margarine and oil with natural Z Trim gel, enabling the food service
      operations throughout the district to offer fresh baked cakes, breads,
      icings, rolls, cookies, brownies, and muffins with reduced calories,
      more fiber, and all the taste of the full fat alternatives.




In
      addition to using Z Trim in baked goods and dressings, Volusia County
      foodservice personnel are also testing Z Trim in their savory category
      of menu offerings such as baked ziti, lasagna, chili, etc.




The
      next
      steps for the widespread transition to healthier favorites include
      many players. The product has been proven safe and effective in lowering fat
      while maintaining taste. The Company is talking to school districts, hospital
      nutritionists, and third party food service contractors across the country
      about
      incorporating Z Trim into their food programs.




Those
      sentiments are shared by the authors of the current best seller, "You
      On a
      Diet," (Free Press) Dr. Mehmet Oz and Dr. Michael Roizen. On page 90
      of
      their book, under the heading of "Help is on the Way," the two Oprah show
      regulars tout the benefits of Z Trim, confirming its calorie reduction and
      taste
      benefits and noting that it "may eventually change the way we eat." That
      change is already underway, according to some school nutritionists.
      "We've established the dividing line between the old and the new
      ways," Lazzaro said. "As long as we're introducing more fresh produce into
      student diets, we can and should take major steps toward improving the nutritional
      profiles of the traditional favorites as well, with Z Trim. It's
      quite simply the new way to 'do food' going forward."




On
      March
      8, 2007, the Company announced the launching of its new Affiliate Sales Program.
      The program is designed to reward loyal users of its Z Trim product line and
      Z
      Trim shareholders who continue to refer customers to Z Trim products. They
      now
      will have the opportunity to benefit from their referrals by signing up for
      the
      Affiliate Program and earning a commission on sales brought in by them through
      simple referrals. The Company feels that this is one of the best ways to show
      that Z Trim is “The People's Company”.







10




Z
      Trim has seen increased coverage in the first quarter of 2007 on the
      web and in written media. The Company and its products have received coverage
      in
      Business Week, First For Women magazine and the best selling book “You On A
      Diet” in the written media, and About.com for low fat cooking, 3 Fat Chicks on a
      Diet, and Knobias on the web. The current First for Women cover story has a
      featured inset on Z Trim in the cover story, next to Oprah and Dr. Mehmet Oz.
      Z
      Trim has also been featured in a number of news stories around the country
      in
      newspapers and magazines, and on the radio and television during the first
      quarter of 2007.




On
      March
      6, 2007, the Company announced that a signature brand is using Z Trim, its
      zero
      calorie natural fat replacement ingredient, in their refrigerated "heat
      & serve" Italian entree. The ingredient list references "Z Trim (natural
      dietary fiber)". This is the Company’s first entry into the refrigerated and
      prepared food market. Z Trim brings binding and texture enhancements to
      refrigerated foods, as well as fat replacement and dietary fiber benefits.
      The
      Company looks to continue to expand Z Trim into other categories in the retail
      marketplace over the next year. The entrees are carried in the refrigerated
      section of Costco stores in the Midwest region.





In
      January 2007, a Pittsburgh area school district announced it was using Z Trim
      Mayo spread in its prepared salads, such as tuna fish salad, egg salad and
      potato salad and in its ranch dressing. Z Trim Mayo Spread has 25 calories
      per
      serving and 82% less fat then the regular leading brand mayonnaise, which has
      90
      calories per serving. The kids in the school thought they were eating regular
      mayonnaise. As a result of the announcement, stories about Z Trim being used
      in
      the school lunch program were carried by TV and radio stations, newspapers,
      magazines and online news services and other websites, nationally and
      internationally. They highlighted that the schools were using Z Trim for ten
      months and kids never knew the difference. The Associated Press released a
      feature on this situation that was the top AP health story for two
      days.





Consumers
      responded to the media coverage by requesting information and by ordering Z
      Trim
      products through the Internet and telephone. Several school districts around
      the
      country also responded by either contacting us directly or having their food
      service provider and food vendors contact us in order to get Z Trim into their
      school meal programs. Shipments have already been made to some of them. The
      media coverage further resulted in testing Z Trim in one of the nation's premier
      hospital-based, doctor-sponsored, large insurance company wellness programs.
      It
      also resulted in a major vitamin retailer approaching the Company with the
      possibility of carrying Z Trim products nationally in 2007-Q2.





In
      January 2007, the Company concluded the review of a six week preliminary
      clinical study by Zev Davis, M.D. at Edward Heart Hospital using Z Trim Appetite
      Control capsules. The results, which were statistically analyzed by Dr. Paul
      Rathouz, Ph.D. - University of Chicago, showed that approximately three out
      of
      four people lost 1 to 2 pounds per week without lifestyle modification.
      Commenced one week before Thanksgiving and concluding the week after Christmas
      2006, the study showed that Z Trim caused no gastrointestinal or other negative
      side affects. Sales in the Appetite Control capsules have increased consistently
      since the release of the results sparking interest from several other prominent
      clinicians seeking to assist in expanding the scope and duration of additional
      studies demonstrating Z Trim's special abilities.





11


In
      January 2007, the second order was received for Non-Dairy Cheese in the
      UK.





The
      Company has agreed to have a book authored by two well-known nutrition experts
      to be released in April 2007 along with an aggressive promotional tour. The
      work
      will be called the Pyramid Diet referring to the new Pyramid the USDA plans
      to
      heavily promote in the coming year. The book will provide significant coverage
      about the Z Trim Advantage and the "Live Life Better" lifestyle.





In
      December 2006, the Company hired former Atkins Nutritional Medical Director
      Stuart Trager, M.D. as its Director of Clinical Affairs. In this role Dr. Trager
      will promote Z Trim to the media from a medical and scientific perspective.
      Dr.
      Trager has been on many national news programs as a weight health expert and
      testified to congress on these issues for Tommy Thompson from the Department
      of
      Health and Human Services.




We
      have
      completed equipment and procedural modifications to increase efficiency in
      the Z
      Trim manufacturing facility and we have also added production areas for Z Trim
      gel bottling and Appetite Control capsule production. Starting January 6, 2007,
      the Z Trim manufacturing facility increased its production schedule to 24 hours,
      7 days a week. The Company is building inventory to support anticipated future
      demand.




We
      have
      made many additions and changes to our web site recently in order to continue
      to
      inform and educate the food industry and the public about the health benefits
      of
      and how to use Z Trim. These changes include:





-
      -
      -     Additional links and information for food industry
      professionals


-
      -
      -     A downloadable online Z Trim brochure


-
      -
      -     A Frequently Asked Questions (FAQ)
      section


-
      -
      -     Links to additional recipes and cooking
      tips


-
      -
      -     New online instructional "Cooking With Z Trim"
      videos


-
      -
      -     Educational and entertaining animated features for
      teachers, students, and
      parents


-
      -
      -     Videos with fitness experts Heather Hawk and Nikki
      Anderson


-
      -
      -     Updated plant pictures and a video tour of the Z Trim
      plant


-
      -
      -     Bios of our Expanded Advisory Panel members who have
      been selected to advise
      and assist the company in reaching its goals


-
      -
      -     Quotes about the benefits of Z Trim by Industry
      Experts


-
      -
      -     New videos and news links covering the Plum Borough,
      Pennsylvania school
      district using Z Trim in their school meals program


-
      -
      -     The addition of the downloadable Z Trim Player which
      will allow people to
      stay
      informed of the latest news about Z Trim.


-
      -
      -     The linking of the NATS website directly to the Z Trim
      product online store
      to
      allow visitors to the NATS website to buy Z Trim products





We
      are
      working on many exciting projects that include:





-
      -
      -     Additional ongoing clinical Z Trim research
      studies


-
      -
      -    Internet traffic to the Nutritional Analysis and Tools
      System (NATS) website
      continues to remain strong, allowing us to inform and educate visitors
      to the website about the benefits of using Z Trim. It also provides
      the opportunity to market and sell Z Trim products to them as
      well.  12


**SUMMARY
      OF FINANCIAL RESULTS**





**RESULTS
      OF OPERATIONS**





**THREE
      MONTHS ENDED MARCH 31, 2007 AS COMPARED TO THE SAME PERIOD ENDING MARCH 31,
      2006.**





Revenues





Revenues
      increased 179% for the three months ended March 31, 2007 from $115,443
      for the three months ended March 31, 2006 to $322,164. The increase in revenues
      was primarily due to the increase in Z Trim product sales and in e-tailer
      segments. The following table provides a breakdown of the revenues for our
      divisions for the periods indicated:





Three
        months ended March 31,
  2007
              
              2006Products
              
              $
              321,408
              
              $
              111,720Services
              
              
              756
              
              
              3,723Total
                  Revenues
              
              $
              322,164
              
              $
              115,443
  Operating
        expenses


Operating
      expenses consist of payroll and related costs, stock option expense, insurance,
      occupancy expenses, professional fees, and general operating expenses.
      Total operating expenses decreased by $1,184,078 or 46% to $1,375,180 for
      the
      three months ended March 31, 2007 from $2,559,258 for the three monthsended
      March 31, 2006. The decrease in operating expenses was primarily due to the
      decrease in investor and public relations, and stock option expenses, net of
      increase in payroll expenses.





The
      stock
      option expense for the three months ending March 31, 2007 was $306,955 compared
      to $1,093,500 for the three months ending March 31, 2006.





Stock
      options from the Company's stock option plan have been utilized in place of
      large salaries for management, staff, and plant employees, and as compensation
      for the advisory board members. Over the past year the Company has been
      building an Advisory Board of experts in the food industry, pharmaceutical industry,
      nutrition and fitness industry, medical profession, and other industries
      related to Z Trim's business. These current and former industry executives,
      doctors, chefs, food formulators, nutritionists, fitness experts, and
      others have been brought together to help Z Trim Holdings with its direction and
      contacts to help insure the growth and success of the Company. The company has
      also
      significantly increased the size of its workforce over that time in the production,
      sales, and marketing areas of the company to allow for the continued expansion
      and execution of its marketing, production, and sales plans. The incentive
      plan is based on three components, the amount of participation or attendance
      of the individual, the type, quality, and amount of service of the individual,
      and the results and value that the individuals provide to the Company
      with their service or participation. Each option grant is based on milestones
      that must be met in order for the options to be exercised. The Company
      feels strongly that the charge for the stock options under the new accounting
      rules is a wise investment in the company's future.





13


Other
      income (expense)





Total
      other income for the three months ended March 31, 2007 was $10,367 compared
      to $5,697 for the three months ended March 31, 2006. The increase was primarily
      due to a combination of increase in interest income and decrease in interest
      expense.





Net
      loss





The
      Company reported a net loss for the first quarter of 2007 of $1,724,636 or
      $0.03
      per share, a 36% decrease in the net loss of $2,705,699 or $0.05 per share
      for
      the first quarter of 2006. This was due primarily to the combination of
      increasing revenue and decreasing expenses.





Assets





The
      Company reported a decrease in Assets for the first quarter of 2007 of $11,143,524
      from $11,173,099 for the comparable period in fiscal 2005. The decrease was
      primarily due to the decrease in  value
      for
      depreciation of the plant and other intangible assets less the increase in
      current assets.





**LIQUIDITY
      AND CAPITAL RESOURCES**





At
      March
      31, 2007 we had cash and cash equivalents of $4,046,845, an increase
      of $3,350,346 from December 31, 2006. The increase in cash is due to the
      proceeds of stock, exercise of options and warrants and increase in the sale
      of
      Z Trim products all totaling $5,023,102, less cash used in operations of
      $1,541,727 and in the purchase of property and equipment of $131,029. Our total
      capital lease obligations were $8,245 at March 31, 2007.





Net
      cash
      used by operating activities increased by 66% to $1,541,727 for the three months
      ended March 31, 2007 as compared to $930,135 for the three months
      ended March 31, 2006. The increased cash usage was composed of a netloss
      of
      $1,724,636 for non-cash items, including depreciation and amortization of
      $162,091, stock option expense of $306,855, and non-cash services of $120,104,
      and for the net cash used from the net increases in assets and decreases in
      liabilities of approximately $406,241.





Net
      cash
      used by investing activities was $131,029 for the three months ended March
      31,
      2007, as compared to net cash used by investing activities of $1,960
      for the three months ended March 31, 2006. The increase was due to increased
      acquisitions of property and equipment for our manufacturing plant in the
      current year.





Net
      cash
      provided by financing activities was $5,023,102 for the three months ended
      March
      31, 2007 as compared to $4,908,893 for the three months ended March
      31,
      2006. Net cash provided by financing activities for the three months
      ended March 31, 2007 was primarily from the proceeds received from the
      sale
      of stock, and the exercise of options and warrants, all totaling $5,028,931.
      Net
      cash provided by financing activities for the three months ended March 31,
      2007
      was primarily from the sale of our stock, and from the exercise of options
      and
      warrants of approximately $4,918,288.




**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      have
      no off-balance sheet arrangements as defined in Item 303(c) of Regulation
      S-B.





14


**ITEM
      3.** CONTROLS AND PROCEDURES





The
      Company's Chief Executive Officer and Chief Financial Officer have concluded
      that the Company's disclosure controls and procedures (as defined pursuant
      to
      Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934), based
      on
      their evaluation of such controls and procedures as of the end of the period
      covered by this report, are effective to ensure that information required to
      be
      disclosed by the Company in the reports it files under the Securities Exchange
      Act of 1934, as amended, is recorded, processed, summarized and reported within
      the time periods specified in the rules and forms of the Securities and Exchange
      Commission and that such information is accumulated and communicated to the
      Company's management, including its Chief Executive officer and Chief Financial
      Officer, as appropriate to allow timely decisions regarding required
      disclosure.





There
      have been no changes in the Company's internal controls over financial reporting
      identified in connection with management's evaluation that occurred during
      the
      Company's last fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, the Company's internal control over financial
      reporting.





**PART
      II - OTHER INFORMATION**





**ITEM
      1.** Legal Proceedings





The
      Company filed a lawsuit in the U.S. District Court in 2005 to collect the
      unpaid principal balance, default interest and attorney fees for a note receivable,
      in total an amount in excess of $1,200,000, for stock issued. The defendants
      have sold the shares purchased with the note receivable. In response, on
      December 27, 2005 those shareholders and a related hedge fund, Pac Bay Financial,
      filed a countersuit against the Company and its directors and officers.
      That lawsuit, which is being heard by the same Judge as in the Company's
      Note Default case listed above, alleges that oral misrepresentations were
      made
      to induce purchases of stock over an approximate one and one-half year period.
      Counter-plaintiffs seek $2 million in compensatory damages and $5 million
      in punitive damages. The basis for these damages claims is yet unknown. The
      company believes that they have meritorious defenses against this action, and
      will
      continue to vigorously defend it. The claim against the officers anddirectors
      is covered by directors and officers insurance to the extent thatthree
      of
      the individual officers and directors are covered. The insurancecoverage
      pays for the defense costs only and provides no indemnity coverage. Theparties
      are engaged in settlement negotiations which could result in theresolution
      of all pending claims. Subsequent to March 31, 2007, the Company received a
      payment of $100,000 from the plaintiff against the principal amount of the
      above
      said note receivable.




On
      November 23, 2005, the Company entered into Letter Agreement ("LOA") with George
      Foreman Enterprises, Inc. ("GFME") pursuant to which both parties would form
      a
      new limited liability company for the purpose of promoting the Company's zero
      calorie fat replacement food ingredient, Z Trim(R). The parties did not reach
      any definitive Agreement as is required by the LOA. On May 9, 2006, the Company
      filed a lawsuit alleging breach of the Parties' nondisclosure agreement and
      trade secret misappropriation in the Circuit Court of the 19th Judicial
      District, Lake County, Illinois seeking damages and injunctive relief against
      GFME. On August 3, 2006 the court, based upon a finding that the Company has
      demonstrated a likelihood of success on the merits of the case, issued an order
      granting the Company a preliminary injunction enforcing the non-disclosure
      agreement between the parties. GFME subsequently appealed the preliminary
      injunction. The Appellate Court denied GFME's appeal, and the injunctive order
      remains in place.





15


On
      July
      17, 2006, George Foreman Enterprises, Inc. filed a complaint against Z Trim
      Holdings, Inc. in the U.S. District Court seeking damages in excess of
      $70,000,000 for specific performance, breach of contract, promissory estoppel
      and unjust enrichment. The basis for all such claims is the underlying LOA,
      set
      forth above. Management believes that the allegations are frivolous and wholly
      without merit and will vigorously defend the claim.





On
      July
      6, 2006, the Company filed a patent infringement suit in the United States
      District Court for the Western District of Wisconsin seeking unspecified damages
      and equitable relief against a manufacturer of a competing product. The case
      was
      dismissed by the court owing to a technicality and on March 20, 2007 the Company
      filed suit again. No trial date has been set as of yet.





On
      January 18, 2007, the Company was served with a complaint by Daniel Caravette
      for breach of contract and violation of the Illinois Wage Payment and Collection
      Act, seeking damages in excess of $1,000,000. Management believes that the
      allegations are frivolous and wholly without merit and will vigorously defend
      the claim.





The
      Company is also a party to various legal proceedings and claims, either asserted
      or unasserted, which arise in the ordinary course of business. While the outcome
      of these matters cannot be predicted with certainty, management does not believe
      that the outcome of any of these claims or any of the above mentioned legal
      matters will have a material adverse effect on the Company's consolidated
      financial position, results of operations, or cash flows.




16


**ITEM
      6.** EXHIBITS




EXHIBIT NO.
              DESCRIPTION  3(i)
              Articles
                  of Incorporation of Circle Group Holdings,Inc.(filed
                  as Exhibit 2.1 to Circle Group's RegistrationStatement
                  on Form 10-SB and incorporated herein by
                  reference).
 
 3(ii)
              Bylaws
                  of Circle Group Holdings, Inc. (filed as Exhibit 2.2 toCircle
                  Group's Registration Statement on Form 10-SB andincorporated
                  herein by reference).
 
 4.1
              Form
                  of Subscription Agreement (filed as Exhibit4.1
                  to the Company's Form 8-K filed on March 30, 2006 andincorporated
                  herein by reference).
 
 4.2
              Form
                  of Warrant to Purchase Common Stock (filed as Exhibit 4.2 tothe
                  Company's Form 8-K filed on March 30, 2006 and incorporatedherein
                  by reference).
 
 4.3
              Form
                  of Registration Rights Agreement (filed as Exhibit 4.3 tothe
                  Company's Form 8-K filed on March 30, 2006 and incorporatedherein
                  by reference).
  4.7
                Form
                    of Subscription Agreement (filed as Exhibit 4.5 to theCompany’s
                    Form 10-KSB filed on April 2, 2007 and incorporatedherein
                    by reference).
 
 4.8
              Form
                  of Warrant to Purchase Common Stock (filed as Exhibit 4.6 to the
                  Company’s
                  Form 10-KSB filed on April 2, 2007 and incorporated herein by
                  reference).
 
 4.9
              Form
                  of Registration Rights Agreement (filed as Exhibit 4.7 to the Company’s
                  Form 10-KSB filed on April 2, 2007 and incorporated herein by
                  reference).
 
 10.1
              Gregory
                  J. Halpern Employment Agreement (filed as Exhibit 10.1 tothe
                  Company’s Form 10-KSB filed on April 2, 2007 and incorporatedherein
                  by reference).
 
 10.2
              Michael
                  J. Theriault Employment Agreement (filed as Exhibit 10.2 to
                  the Company’s Form 10-KSB filed on April 2, 2007 and incorporated herein
                  by reference).
 
 10.3
              Dana
                  L. Dabney Employment Agreement (filed as Exhibit 10.3 tothe
                  Company’s Form 10-KSB filed on April 2, 2007 and
                  incorporatedherein
                  by reference).


17


10.4*
            Alan
                  G. Orlowsky Employment Agreement dated May 1,
                  2007.  10.5*
              Brian S. Israel Board of Directors
                appointment
                letter dated April 30,
                2007.
 
 10.6
              Steve
                    Cohen Employment Agreement (filed as Exhibit 10.12 to the Company’s Form
                    10-QSB for the quarter ending June 20, 2006 and incorporated
                    herein by
                    reference).
  10.7
              Circle
                  Group Holdings,Inc. 1999 Stock Option Plan (filed asExhibit
                  6.6 to Circle Group’s Registration Statement on Form10-SB
                  and incorporated herein by
                  reference).
 
 10.8
              Circle
                  Group Holdings, Inc. 2004 Equity Incentive Plan(filed
                  as Appendix C to the Circle Group's Proxy Statement forits
                  Annual Meeting conducted on June 16, 2004 and approved by itsShareholders
                  on that date and incorporated herein by
                  reference).
 
 10.9
              Industrial
                  Lease Agreement between CLO Enterprises and CircleGroup
                  Holdings, Inc. dated May 20, 1999 (filed as Exhibit 6.7 toCircle
                  Group's Registration Statement on Form 10-SB andincorporated
                  herein by reference).
 
 10.10
              Industrial
                  Lease Agreement between CLO Enterprises and CircleGroup
                  Holdings, Inc. dated June 18, 1999 (filed as Exhibit 6.8
                  toCircle
                  Group's Registration Statement on Form 10-SB andincorporated
                  herein by reference).
 
 10.11
              Assignment
                  of License Agreement between UTEK Corporation, CircleGroup
                  Holdings, Inc. and Brookhaven Science Associates datedMarch
                  26 2003 (filed as Exhibit 10.14 to Circle Group'sForm
                  10-QSB for the quarter ending September 30, 2003 andincorporated
                  herein by reference).
  10.12
              Assignment
                  of License Agreement between UTEK Corporation, CircleGroup
                  Holdings, Inc. and University of Illinois dated July 9,2003
                  (filed as Exhibit 10.15 to Circle Group's Form 10-QSB forthe
                  quarter ending September 30, 2003 and incorporated herein byreference).
 
 10.13
              Assignment
                  of License Agreement between Circle Group Holdings,Inc.
                  and Brookhaven Science Associates dated July 22, 2003(filed
                  as Exhibit 10.16 to Circle Group's Form 10-QSB forthe
                  quarter ending September 30, 2003 and incorporated herein byreference).
 
 31.1*
              Statement
                  Under Oath of Principal Executive Officer of theCompany
                  Pursuant to Section 302 of Sarbanes-Oxley Act of
                  2002
 
 31.2*
              Statement
                  Under Oath of Principal Financial Officer of theCompany
                  Pursuant to Section 302 of Sarbanes-Oxley Act of
                  2002
 
 32.1*
              Statement
                  Under Oath of Principal Executive Officer of theCompany
                  Pursuant to Section 906 of Sarbanes-Oxley Act of
                  2002
 
 32.2*
              Statement
                  Under Oath of Principal Financial Officer of theCompany
                  Pursuant to Section 906 of Sarbanes-Oxley Act of
                  2002
  *
        Filed
        herewith


18


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly authorized
      as of May 9, 2007.




**Z TRIM HOLDINGS,
              INC.**By:
            /s/ Gregory
              J. HalpernGregory
                J. Halpern
              Chairman
                of the Board, and
              Chief
                Executive Officer


In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities as of May
      9,
      2007.




/s/ GREGORY
              J. HALPERNGregory
                J. Halpern
              Director
                and Chief Executive Officer
              (principal
                executive officer)  /s/ ALAN
              G.
              ORLOWSKYAlan
                  G. Orlowsky
                Chief
                  Financial Officer (principal financial
                or
                  accounting officer)


/s/ STEVE
              J.
              COHENSteve
                  J. Cohen
                Director
                  and President  /s/ STEVE
              H.
              SALGANSteve
                  H. Salgan
                Director


/s/ STANFORD
              J. LEVINStanford
                  J. Levin
                Director




/s/ DANA
              L.
              DABNEYDana
                  L. Dabney
                Director





/s/ BRIAN
              S.
              ISRAELBrian
                  S. Israel
                Director


19




**INDEX
      OF EXHIBITS**







EXHIBIT NO.
            DESCRIPTION  3(i)
            Articles
                of Incorporation of Circle Group Holdings,Inc.(filed
                as Exhibit 2.1 to Circle Group's RegistrationStatement
                on Form 10-SB and incorporated herein by
                reference).





3(ii)
            Bylaws
                of Circle Group Holdings, Inc. (filed as Exhibit 2.2 toCircle
                Group's Registration Statement on Form 10-SB andincorporated
                herein by reference).





4.1
            Form
                of Subscription Agreement (filed as Exhibit4.1
                to the Company's Form 8-K filed on March 30, 2006 andincorporated
                herein by reference).





4.2
            Form
                of Warrant to Purchase Common Stock (filed as Exhibit 4.2 tothe
                Company's Form 8-K filed on March 30, 2006 and incorporatedherein
                by reference).





4.3
            Form
                of Registration Rights Agreement (filed as Exhibit 4.3 tothe
                Company's Form 8-K filed on March 30, 2006 and incorporatedherein
                by reference).




4.7
              Form
                  of Subscription Agreement (filed as Exhibit 4.5 to theCompany’s
                  Form 10-KSB filed on April 2, 2007 and incorporatedherein
                  by reference).





4.8
            Form
                of Warrant to Purchase Common Stock (filed as Exhibit 4.6 to the
                Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





4.9
            Form
                of Registration Rights Agreement (filed as Exhibit 4.7 to the Company’s
                Form 10-KSB filed on April 2, 2007 and incorporated herein by
                reference).





10.1
            Gregory
                J. Halpern Employment Agreement (filed as Exhibit 10.1 tothe
                Company’s Form 10-KSB filed on April 2, 2007 and incorporatedherein
                by reference).





10.2
            Michael
                J. Theriault Employment Agreement (filed as Exhibit 10.2 to
                the Company’s Form 10-KSB filed on April 2, 2007 and incorporated herein
                by reference).





10.3
            Dana
                L. Dabney Employment Agreement (filed as Exhibit 10.3 tothe
                Company’s Form 10-KSB filed on April 2, 2007 and
                incorporatedherein
                by reference).


20


10.4*
            Alan
                  G. Orlowsky Employment Agreement dated May 1,
                  2007.




10.5*
            Brian
                  S. Israel Board of Directors appointment letter dated April30,
                  2007.




10.6
            Steve
                Cohen Employment Agreement (filed as Exhibit 10.12 to the Company’s Form
                10-QSB for the quarter ending June 20, 2006 and incorporated herein
                by
                reference).




10.7
            Circle
                Group Holdings,Inc. 1999 Stock Option Plan (filed asExhibit
                6.6 to Circle Group’s Registration Statement on Form10-SB
                and incorporated herein by
                reference).





10.8
            Circle
                Group Holdings, Inc. 2004 Equity Incentive Plan(filed
                as Appendix C to the Circle Group's Proxy Statement forits
                Annual Meeting conducted on June 16, 2004 and approved by itsShareholders
                on that date and incorporated herein by
                reference).





10.9
            Industrial
                Lease Agreement between CLO Enterprises and CircleGroup
                Holdings, Inc. dated May 20, 1999 (filed as Exhibit 6.7 toCircle
                Group's Registration Statement on Form 10-SB andincorporated
                herein by reference).





10.10
            Industrial
                Lease Agreement between CLO Enterprises and CircleGroup
                Holdings, Inc. dated June 18, 1999 (filed as Exhibit 6.8
                toCircle
                Group's Registration Statement on Form 10-SB andincorporated
                herein by reference).





10.11
            Assignment
                of License Agreement between UTEK Corporation, CircleGroup
                Holdings, Inc. and Brookhaven Science Associates datedMarch
                26 2003 (filed as Exhibit 10.14 to Circle Group'sForm
                10-QSB for the quarter ending September 30, 2003 andincorporated
                herein by reference).




10.12
            Assignment
                of License Agreement between UTEK Corporation, CircleGroup
                Holdings, Inc. and University of Illinois dated July 9,2003
                (filed as Exhibit 10.15 to Circle Group's Form 10-QSB forthe
                quarter ending September 30, 2003 and incorporated herein byreference).





10.13
            Assignment
                of License Agreement between Circle Group Holdings,Inc.
                and Brookhaven Science Associates dated July 22, 2003(filed
                as Exhibit 10.16 to Circle Group's Form 10-QSB forthe
                quarter ending September 30, 2003 and incorporated herein byreference).





31.1*
            Statement
                Under Oath of Principal Executive Officer of theCompany
                Pursuant to Section 302 of Sarbanes-Oxley Act of
                2002





31.2*
            Statement
                Under Oath of Principal Financial Officer of theCompany
                Pursuant to Section 302 of Sarbanes-Oxley Act of
                2002





32.1*
            Statement
                Under Oath of Principal Executive Officer of theCompany
                Pursuant to Section 906 of Sarbanes-Oxley Act of
                2002





32.2*
            Statement
                Under Oath of Principal Financial Officer of theCompany
                Pursuant to Section 906 of Sarbanes-Oxley Act of
                2002




*
      Filed
      herewith


21







Z
      TRIM
      HOLDINGS, INC. AND SUBSIDIARIES





Index
      to
      Financial Statements







Consolidated
              Balance Sheet at March 31,
              2007 (unaudited)
            
            
            F-1Consolidated
              Statement of Operations as of
              March 31, 2007(unaudited)
            
            
            F-2Consolidated
              Statements of Cash Flows as of
              March 31, 2007(unaudited)
            
            
            F-3Notes
              to Interim Unaudited Consolidated
              Financial Statements
            
            
            F-4









**Z
        TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          BALANCE SHEETS (Unaudited)**
 
 **MARCH
          31, 2007 AND 2006**
    **ASSETS**Current
                  Assets
              
              **2007**
              
              2006Cash
                  and cash equivalents
              
              **$
                  4,046,845**
              
              $
                  4,001,797Accounts
                  receivable, net of allowance for doubtfulaccounts
                  of $0 for 2007 and 2006
              
              
              **124,369**
              
              
              73,506Inventory
              
              
              **351,502**
              
              
              106,410Prepaid
                  expenses and other assets
              
              
              **224,383**
              
              
              96,704**Total
                  current assets**
              
              
              **4,747,099**
              
              
              4,278,417Property
                  and equipment, net
              
              
              **6,235,321**
              
              
              6,363,245Other
                  AssetsIntangible
                  assets, net
              
              
              **150,001**
              
              
              520,334Deposits
              
              
              **11,103**
              
              
              11,103**Total
                  other assets**
              
              
              **161,104**
              
              
              531,437**TOTAL
                  ASSETS**
              
              **$**
              **11,143,524**
              
              $
              11,173,099**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****2007**
              
              
              2006Current
                  LiabilitiesAccounts
                  payable
              
              **$**
              **348,658**
              
              $
              804,137Accrued
                  expenses
              
              
              **141,975**
              
              
              215,958Stock
                  options payable
              
              
              **-**
              
              
              -Capital
                  lease obligations
              
              
              **8,245**
              
              
              27,459**Total
                  current liabilities**
              
              
              **498,878**
              
              
              1,047,554Long-Term
                  Liabilities,Capital
                  lease obligations
              
              
              **-**
              
              
              8,214**TOTAL
                  LIABILITIES**
              
              
              **498,878**
              
              
              1,055,768Stockholders'
                  EquityCommon
                  stock, $0.00005 par value; authorized 200,000,000 shares;issued
                  and outstanding 63,571,763 shares
              
              
              **3,179**
              
              
              2,988Common
                  stock to be issued
              
              
              **400**
              
              
              22Additional
                  paid-in capital
              
              
              **65,248,978**
              
              
              46,943,528Unamortized
                  expenses
              
              
              **-**
              
              
              (818,721
              )Stock
                  subscription receivable, net
              
              
              **(3,398,976**
              **)**
              
              (240,104
              )Accumulated
                  Deficit
              
              
              **(51,208,935**
              **)**
              
              (35,759,113
              )Treasury
                  stock, at cost
              
              
              **-**
              
              
              (11,269
              )**TOTAL
                  STOCKHOLDERS' EQUITY**
              
              
              **10,644,646**
              
              
              10,117,331**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              **$**
              **11,143,524**
              
              $
              11,173,099
   **See
          notes to interim unaudited consolidated financial
          statements**
  F-1
  **Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS (Unaudited)**
 **For
                    the Three Months Ended March 31,**
                
                **2007**
                
                2006**REVENUES:**Products
                
                **$**
                **321,408**
                
                $
                111,720Services
                
                
                **756**
                
                
                3,723**Total
                    revenues**
                
                
                **322,164**
                
                
                115,443**COST
                    OF REVENUES:**Products
                
                
                **681,987**
                
                
                267,581**Total
                    cost of revenues**
                
                
                **681,987**
                
                
                267,581**GROSS
                    MARGIN**
                
                
                (359,823
                )
                
                (152,138
                )**OPERATING
                    EXPENSES:**Selling,
                    general and administrative
                
                
                **1,064,892**
                
                
                1,457,175Stock
                    option expense
                
                
                **306,955**
                
                
                1,093,500Amortization
                    of intangible assets
                
                
                **3,333**
                
                
                8,583**Total
                    operating expenses**
                
                
                **1,375,180**
                
                
                2,559,258**OPERATING
                    LOSS**
                
                
                (1,735,003
                )
                
                (2,711,396
                )**OTHER
                    INCOME (EXPENSES):**Rental
                    and other income
                
                
                **10,500**
                
                
                11,065Interest
                    income
                
                
                **1,243**
                
                
                -Interest
                    expense
                
                
                (1,376
                )
                
                (5,368
                )**Total
                    other income (expenses)**
                
                
                **10,367**
                
                
                5,697**NET
                    LOSS**
                
                **$**
                (1,724,636
                )
                $
                (2,705,699
                )**Net
                    Loss per Share - Basic and Diluted**
                
                **$**
                (0.03
                )
                $
                (0.05
                )**Weighted
                    Average Number of Shares**
                
                
                **65,678,054**
                
                
                54,473,170
  **See
          notes to interim unaudited consolidated financial
          statements**
  F-2
  **Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS (Unaudited)**
 **For
                    the Three Months Ended March 31,**
                
                **2007**
                
                2006**Cash
                    Flows From Operating Activities:**Net
                    loss
                
                **$**
                **(1,724,636**
                **)**
                $
                (2,705,699
                )Adjustments
                    to reconcile net loss to net cash used in operations:Depreciation
                    and amortization
                
                
                **162,091**
                
                
                159,424Issuance
                    of common stock and warrants for services
                
                
                **6,765**
                
                
                155,164Amortization
                    of noncash expenses
                
                
                **113,339**
                
                
                618,176Stock
                    option expense
                
                
                **306,955**
                
                
                1,093,500(Increase)
                    decrease in:Accounts
                    receivable
                
                
                (53,193
                )
                
                (13,060
                )Inventory
                
                
                (131,897
                )
                
                (7,623
                )Prepaid
                    expenses and other assets
                
                
                (129,966
                )
                
                (11,034
                )Decrease
                    in:Accounts
                    payable and accrued expenses
                
                
                (91,185
                )
                
                (218,983
                )**Cash
                    flows used in operating activities**
                
                
                (1,541,727
                )
                
                (930,135
                )**Cash
                    Flows From Investing Activities:**Purchase
                    of property and equipment
                
                
                (131,029
                )
                
                (1,960
                )**Cash
                    flows used in investing activities**
                
                
                (131,029
                )
                
                (1,960
                )**Cash
                    Flows From Financing Activities:**Net
                    proceeds from sales of stock
                
                
                **-**
                
                
                4,845,488Exercise
                    of options and warrants
                
                
                **1,469,907**
                
                
                72,800Net
                    payments on capital lease obligations
                
                
                (5,829
                )
                
                (9,395
                )Proceeds
                    from stock subscription receviable
                
                
                **3,559,024**
                
                
                -**Cash
                    flows provided by financing activities**
                
                
                **5,023,102**
                
                
                4,908,893**Net
                    increase in cash and cash equivalents**
                
                
                **3,350,346**
                
                
                3,976,798Cash
                    and cash equivalents, at beginning of period
                
                
                **696,499**
                
                
                24,999**Cash
                    and cash equivalents, at end of period**
                
                **$**
                **4,046,845**
                
                $
                4,001,797Supplemental
                    Disclosures of Cash Flow Information:Interest
                    paid
                
                **$**
                **1,376**
                
                $
                5,368Supplemental
                    schedule of noncash investing and financing activities:Issuance
                    of common stock and warrants for services
                
                **$**
                **6,765**
                
                $
                1,334,743Stock
                    subscriptions receivable incurred for issuance of stock
                
                **$**
                **3,398,976**
                
                $
                55,104
  **See
          notes to interim unaudited consolidated financial
          statements**
  F-3
  **Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**
  **NOTE
        1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
        POLICIES**
  Nature
        of Business
 
 Z
        Trim
        Holdings, Inc. (the “Company”) manufactures a zero calorie fat substitute, Z
        Trim, and other Z Trim related products. The company will continue exploring
        all
        available options for its other Z Trim technologies and related
        assets.
 
 The
        Company has participated in several public and private offerings and has
        expanded its business. In 2002, the Company acquired FiberGel Technologies,
        Inc.
        (“FiberGel”), which owns an exclusive license to Z Trim, an all-natural,
        agriculture-based fat replacement.
 
 The
        Company has three reportable business unit segments: food product development,
        security product development and e-tailer. The Company operates through its
        FiberGel, The Brave Way Training Systems, Inc., On-Line Bedding Corp., and
        Z-Amaize Technologies, Inc. divisions.
 
 A
        summary
        of significant accounting policies follows.
 
 Presentation
        of Interim Information
 
 The
        financial information at March 31, 2007 and for the three months ended March
        31,
        2007 and 2006 is unaudited, but includes all adjustments (consisting only
        of
        normal recurring adjustments) that the Company considers necessary for a
        fair
        presentation of the financial information set forth herein, in accordance
        with
        accounting principles generally accepted in the United States (“U.S. GAAP”) for
        interim financial information, and with the instructions to Form 10-QSB and
        Item 310 (b) of Regulation S-B. Accordingly, such information does not
        include all of the information and footnotes required by U.S. GAAP for annual
        financial statements. For further information, refer to the consolidated
        financial statements and footnotes thereto included in the Company’s annual
        Report on Form 10-KSB for the year ended December 31, 2006.
 
 The
        results for the three months ended March 31, 2007 may not be indicative of
        results for the year ending December 31, 2007 or any future periods.
 
 Principle
        of Consolidation and Presentation
 
 The
        accompanying consolidated financial statements include the accounts of Z
        Trim
        Holdings Inc. and its subsidiaries after elimination of significantly all
        intercompany accounts and transactions. Certain prior period items have been
        reclassified from operating expenses to cost of goods sold for ease of
        comparison. This reclassification affects neither the net loss nor the
        accumulated deficit of the Company.
 
 Use
        of
        estimates
 
 The
        preparation of the accompanying consolidated financial statements in conformity
        with accounting principles generally accepted in the United States (U.S.
        GAAP)
        requires management to make certain estimates and assumptions that affect
        the
        reported amounts of assets and liabilities and disclosure of contingent assets
        and liabilities at the date of the financial statements and the reported
        amounts
        of revenues and expenses during the reporting period. Actual results could
        differ from those estimates.
 
 F-4
 
 **Z
        TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
        TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
        31, 2007**
 
  **NOTE
        1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)**
  Income
        (Loss) Per Common Share
  Basic
        net
        income (loss) per share includes no dilution and is computed by dividing
        net
        income (loss) available to common stockholders by the weighted average number
        of
        common stock outstanding for the period. Diluted earnings per share is computed
        by dividing net income by the weighted average number of shares outstanding
        and,
        when, diluted, potential shares from options and warrants to purchase common
        stock using the treasury stock method. Diluted net loss per common share
        does
        not differ from basic net loss per common share since potential shares of
        common
        stock are anti-dilutive for all periods presented.
   Cashless
        Exercise of Warrants
   The
        Company has issued warrants to purchase common stock where the holder is
        entitled to exercise the warrant via a cashless exercise, when the exercise
        price is less than the fair value of the common stock. The Company accounts
        for
   the
        issuance of common stock on the cashless exercise of warrants as a cost of
        capital.
  Stock
        Based Compensation
  Effective
        January 1, 2006, the Company adopted the fair value recognition provisions
        of FASB Statement No. 123(R), “Share-Based Payment” (SFAS 123R), using the
        modified-prospective-transition method. Under that transition method,
        compensation cost recognized in 2006 includes: (a) compensation cost for
        all share-based payments granted prior to, but not yet vested as of
        January 1, 2006 based on the grant date fair value calculated in accordance
        with the original provisions of SFAS 123, and (b) compensation cost for all
        share-based payments granted subsequent to December 31, 2005, based on the
        grant-date fair value estimated in accordance with the provisions of SFAS
        123(R).
  As
        a
        result of adopting SFAS 123(R) on January 1, 2006, the Company recognized
        pre-tax compensation expense related to stock options of $306,955 and $1,093,500
        as of March 31, 2007 and 2006, respectively. The March 31, 2007 stock option
        expense included an additional charge of $12,607 from the modification of
        45,000
        out-of-money options. These options were granted two years extension.
 
 New
        Accounting Pronouncements
 
 In
        February 2007, the Financial Accounting Standards Board (“FASB’) issued
        Financial Accounting Standards (“FAS”) No. 159, *The
        Fair Value Option for Financial Assets and Financial Liabilities - Including
        an
        amendment of FASB Statement No. 115* ,
        which
        permits entities to choose to measure many financial instruments and certain
        other items at fair value at specified election dates. A business entity
        is
        required to report unrealized gains and losses on items for which the fair
        value
        option has been elected in earnings at each subsequent reporting date. This
        statement is expected to expand the use of fair value measurement. FAS No.159
        is
        effective for financial statements issued for fiscal years beginning after
        November 15, 2007, and interim periods within those fiscal years.
 
 In
        September 2006, the FASB issued FAS No.
        157, *Fair
        Value Measurements* .
        FAS No.
        157 defines fair value, establishes a framework for measuring fair value
        in
        generally accepted accounting principles, and expands disclosures about fair
        value measurements. This statement addresses how to calculate fair value
        measurements required or permitted under other accounting pronouncements.
        Accordingly, this statement does not require any new fair value measurements.
        However, for some entities, the application of the statement will change
        current
        practice. FAS No. 157 is effective for the Company beginning January 1, 2008.
        The Company is currently evaluating the impact of this standard.
 
 In
        September 2006, the Securities and Exchange Commission ("SEC") staff issued
        Staff Accounting Bulletin No. 108 ("SAB 108"), *Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements.* The
        stated purpose of SAB 108 is to provide consistency between how registrants
        quantify financial statement misstatements.
 F-5
  **Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**
 
  **NOTE
        1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)**
  Prior
        to
        the issuance of SAB 108, there have been two widely-used methods, known as
        the
        "roll-over" and "iron curtain" methods, of quantifying the effects of financial
        statement misstatements. The roll-over method quantifies the amount by which
        the
        current year income statement is misstated while the iron curtain method
        quantifies the error as the cumulative amount by which the current year balance
        sheet is misstated. Neither of these methods considers the impact of
        misstatements on the financial statements as a whole.
 
 SAB
        108
        established an approach that requires quantification of financial statement
        misstatements based on the effects of the misstatement on each of the Company's
        financial statements and the related financial statement disclosures. This
        approach is referred to as the "dual approach" as it requires quantification
        of
        errors under both the roll-over and iron curtain methods.
 
 SAB
        108
        allows registrants to initially apply the dual approach by either retroactively
        adjusting prior financial statements as if the dual approach had always been
        used, or by recording the cumulative effect of initially applying the dual
        approach as adjustments to the carrying values of assets and liabilities
        as of
        January 1, 2006 with an offsetting adjustment recorded to the opening balance
        of
        retained earnings.
 
 The
        Company will initially apply SAB 108 using the cumulative effect transition
        method in connection with the preparation of the annual financial statements
        for
        the year ending December 31, 2006. The Company does not believe the adoption
        of
        SAB 108 will have a significant effect on its consolidated financial
        statements.
 
  **NOTE
        2-INVENTORY**
  At
        March
        31, Inventory consists of the following:
 
 2007
                
                2006Raw
                    materials
                
                $
                45,296
                
                $
                36,187Work-in-process
                
                
                9,449
                
                
                32,073Packaging
                
                
                20,955
                
                
                31,762Finished
                    goods
                
                
                275,802
                
                
                6,388Total
                    inventory
                
                $
                351,502
                
                $
                106,410
  F-6
 **Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**
  **NOTE
        3-PROPERTY AND EQUIPMENT, NET**
  At
        March
        31, Property and equipment, net consists of the following:
  2007
                
                2006Production,
                    engineering and other equipment
                
                $
                4,976,871
                
                $
                4,505,143Leasehold
                    improvements
                
                
                2,745,917
                
                
                2,629,400Office
                    equipment and furniture
                
                
                601,067
                
                
                599,132Computer
                    equipment and related software
                
                
                336,143
                
                
                319,469Construction
                    in process - equipment
                
                
                -
                
                
                99,4878,659,998
                
                
                8,152,631Accumulated
                    depreciation
                
                
                (2,424,677
                )
                
                (1,789,386
                )Property
                    and equipment, net
                
                $
                6,235,321
                
                $
                6,363,245
   **NOTE
        4 - INTANGIBLE ASSETS**
   During
        the first three months of fiscal 2007, no significant identified intangible
        assets were acquired and no identified intangible assets were impaired. The
        following table present details of the Company’s purchased intangible assets:
  
 GrossCarrying
              
              AccumulatedAmount
              
              
              Amortization
              
              
              NetLicense
                  Rights toWebsite
              
              
              200,000
              
              
              (49,999
              )
              
              150,001Total
                  intangibles
              
              $
              200,000
              
              $
              (49,999
              )
              $
              150,001
  Amortization
        of intangibles was $3,333 and $8,583 for the three months ended March 31,
        2006
        and 2005, respectively.
   Based
        on
        the carrying amount of the intangibles as of March 31, 2006, and assuming
        no
        impairment of the underlying assets, the estimated future amortization is
        as
        follows:
  
 Years
                    ended December 31,2007
                    (April 1 to December 31)
                
                
                10,0002008
                
                
                13,3332009
                
                
                13,3332010
                
                
                13,3332011
                
                
                13,333Thereafter
                
                
                86,669Total
                    amortization
                
                $
                150,001
 
 F-7
 **Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**
 **NOTE
        5- STOCKHOLDERS' EQUITY**
   Private
        Placement Offerings
   On
        February 2, 2007, the Company entered into an agreement with J.P. Turner
&
Company, L.L.C. to raise between $4,000,000 and $8,000,000, using the Company’s
        common stock as security. The purchase price was $1.00 per share, which was
        greater than 70% of the volume weighted average price of the Company’s common
        stock for the 90 days from the day prior to the closing date, which was March
        29, 2007. The investors also received a 25% stock warrant at an exercise
        price
        equal to 120% of the purchase price. The warrants have a term of 5
        years.
   The
        Company will file a Registration Statement covering the resale of the common
        shares underlying the unit and warrant within 60 days of the closing date.
        The
        Company shall respond to all SEC comments within 10 calendar days of receipt
        of
        said comments and will use its best efforts to cause the Registration Statement
        to become effective within 120 days of the closing date.
   J.P.
        Turner & Company,
        L.L.C received
        a placement fee of 10% of the gross proceeds and 15% warrant coverage with
        an
        exercise price equal to the purchase price.
   The
        offering closed on March 29, 2007. The Company has received stock subscriptions
        for 8,000,000 shares of its common stock and 2,000,000 warrants. As of April
        3,
        2007 the Company received $6,958,000 in proceeds, which is net of offering
        costs
        and commissions of $1,042,000.
   On
        March
        24 through 30, 2006, the Company entered into private placement subscription
        agreements pursuant to which it sold unregistered shares of our common stock,
        par value $0.00005 per share (“Common Stock”), and warrants exercisable for
        Common Stock. The Company sold approximately 205 units in the private placement,
        with each unit consisting of 40,323 shares of Common Stock. In addition,
        investors who invested at least $500,000 in the private placement received
        a
        five-year warrant with an exercise price of $1.00 per share to purchase a
        number
        of shares of Common Stock equal to 10% of the number of shares of Common
        Stock
        purchased (the “Warrants”). In the aggregate the Company sold 8,245,368 shares
        of Common Stock, and Warrants to purchase an additional 161,292 shares of
        Common
        Stock.  Proceeds from the sale, net of commissions and fees of $521,865,
        totaled $4,536,433. The Company also entered into a registration rights
        agreement in connection with the private placement pursuant to which it has
        agreed to file with the Securities and Exchange Commission a registration
        statement covering the resale of the Common Stock and Common Stock underlying
        the Warrants.
   National
        Securities Corporation (“National Securities”) served as the lead placement
        agent in connection with the private placement. National Securities received
        cash fees in the aggregate of $521,865 and warrants to purchase 824,537 shares
        of Common Stock on terms which are identical to the Warrants included in
        the
        units except that the exercise price is $0.68 per share and they contain
        an
        assignment provision. In addition, the placement agent’s warrant has
        registration rights that are the same as those afforded to investors in the
        private placement.
   The
        Company determined that all of the securities sold and issued in the private
        placement were exempt from registration under the Securities Act of 1933,
        as
        amended (the “Act”) pursuant Section 4(2) of the Act and Rule 506 of Regulation
        D Promulgated under the Act. The Company based this determination on the
        non-public manner in which it offered the securities and on the representations
        of the persons purchasing such securities, which included, in pertinent part,
        that such persons were “accredited investors” within the meaning of Rule 501 of
        Regulation D promulgated under the Act, and that such persons were acquiring
        such securities for investment purposes for their own respective accounts
        and
        not as nominees or agents, and not with a view to resale or distribution,
        and
        that each such persons understood such securities may not be sold to otherwise
        deposed of without registration under the Act or an applicable exemption
        therefrom.
   In
        January 2006, the Company conducted a self-underwritten offering of the
        Company’s common stock up to $1.24 million. The stock was sold for $31,000 per
        unit. Each unit consisted of 50,000 shares of common stock and 50,000 warrants.
        The warrants are exercisable at $1.00 per share and expire in three (3) years
        after purchase of the above-described unit. The Company sold and issued
        1,000,000 shares and received proceeds of $620,000 under the
        offering.
   
 F-8
  **Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**
  **NOTE
        5- STOCKHOLDERS' EQUITY (Continued)**
  Exercising
        of stock warrants and options
  During
        the first three months of 2007 and 2006, stock warrants and options were
        exercised. The Company received total proceeds of $1,469,906 and $72,800,
        respectively.
   Common
        Stock issued on the cashless exercise of warrants
   During
        February 2007 the Company issued 11,578 shares of common stock on the cashless
        exercise of warrants.
   **NOTE
        6 - NET LOSS PER SHARE**
   The
        following table sets forth the computation of basic and diluted net loss
        per
        share:
   Three
                    Months endedMarch
                    31,**2007**
                
                2006Numerator:Net
                    loss
                
                **$**
                **(1,708,584**
                **)**
                $
                (2,705,699
                )Denominator:Weighted
                    average number of shares outstanding
                
                
                **65,678,054**
                
                
                54,473,170Net
                    loss per share-basic and diluted
                
                **$**
                **(0.03**
                **)**
                $
                (0.05
                )
  As
        the
        Company incurred net losses for the three months ended March 31, 2007, the
        effect of dilutive securities totaling 5,816,461 equivalent shares has been
        excluded from the calculation of diluted loss per share because their effect
        was
        anti-dilutive.
   As
        the
        Company incurred net losses for the three months ended March 31, 2006, the
        effect of dilutive securities totaling 2,453,404 equivalent shares has been
        excluded from the calculation of diluted loss per share because their effect
        was
        anti-dilutive.
   F-9
 **Z
            TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
            TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2007**
 
  **NOTE
        7 - STOCK OPTION PLAN**
   The
        Company has a Stock Option Plan (the Plan) effective January 2, 1999 and
        amended
        in 2004, which provides for the issuance of qualified options to all employees
        and non-qualified options to consultants and other service providers.
   A
        summary
        of the status of stock options issued by the Company as of March 31, 2007
        and
        2006 is presented in the following table:
   2007
                
                2006Weghted
                
                
                
                WeghtedNumber
                
                Average
                
                Number
                
                Averageof
                
                Exercise
                
                of
                
                ExerciseShares
                
                Price
                
                Shares
                
                PriceOutstanding
                    at beginning of year
                
                
                20,285,749
                
                $
                0.99
                
                
                12,892,939
                
                $
                1.03Granted
                
                
                262,000
                
                
                1.22
                
                
                1,600,000
                
                
                1.05Exercised
                
                
                (254,210
                )
                
                0.76
                
                
                (141,955
                )
                
                0.46Expired
                    and Cancelled
                
                
                (470,000
                )
                
                1.15
                
                
                -
                
                
                -Outstanding
                    at end of period
                
                
                19,823,539
                
                $
                0.99
                
                
                14,350,984
                
                $
                1.04Exercisable
                    at end of period
                
                
                19,623,539
                
                $
                0.99
                
                
                14,350,984
                
                $
                1.04
  The
        fair
        value of each stock option granted is estimated on the date of grant using
        the
        Black-Scholes option valuation model. This model uses the assumptions listed
        in
        the table below. Expected volatilities are based on the historical volatility
        of
        the Company’s stock. The risk-free rate for periods within the expected life of
        the option is based on the U.S. Treasury yield curve in effect at the time
        of
        grant.
   2007
                
                2006Weighted
                    average fair value per option granted
                
                $
                0.85
                
                $
                0.68Risk-free
                    interest rate
                
                
                4.54
                %
                
                4.83
                %Expected
                    dividend yield
                
                
                0.00
                %
                
                0.00
                %Expected
                    lives
                
                
                3.00
                
                
                3.00Expected
                    volatility
                
                
                112.92
                %
                
                127.83
                %
  As
        of
        March 31, 2007, there was $145,124 of total unrecognized compensation cost
        related to non-vested share-based compensation arrangements granted under
        the
        plan. The cost is expected to be recognized over a weighted average period
        of
        six months.
   The
        following table sets forth additional information about stock options
        outstanding at March 31, 2007:
 WeightedAverage
                
                WeightedRange
                    of
                
                
                
                Remaining
                
                AverageExercise
                
                Options
                
                Contractual
                
                Exercise
                
                OptionsPrices
                
                Outstanding
                
                Life
                
                Price
                
                Exercisable$0.01-$1.50
                
                19,228,539
                
                1.8
                    years
                
                $
                    0.95
                
                19,028,539$1.51-$3.00
                
                595,000
                
                0.6
                    years
                
                $
                    2.09
                
                595,00019,823,539
                
                1.8
                    years
                
                $
                    0.99
                
                19,623,539
 
  F-10
  **Z
            TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
            TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2007**
   **NOTE
        7 - STOCK OPTION PLAN (continued)**
   As
        of
        March 31, 2007 and 2006, the Company has warrants outstanding to purchase
        4,347,048 and 6,149,995 shares of the Company’s common stock, respectively, at
        prices ranging from $0.45 to $6.40 per share. These warrants expire at various
        dates through March 2011.
   **NOTE
        8 - MAJOR CUSTOMERS AND CREDIT CONCENTRATION**
   The
        Company’s principal customers are wholesale companies. One customer accounted
        for approximately 21% and 57% of the Food Product Development segment revenues
        for the three months ended March 31, 2007 and 2006, respectively. Two other
        customers accounted for approximately 82% and 85% of the E-tailer segment
        revenues for the three months ended March 31, 2007 and 2006, respectively.
        Management does not believe a significant credit risk exists at March 31,
        2007.
   The
        Company maintains cash deposits with major banks, which from time to time
        may
        exceed federally insured limits. The Company periodically assesses the financial
        condition of the institutions and believes that the risk of any loss is
        minimal.
   **NOTE
        9** **-
        pending litigation**
   The
        Company filed a lawsuit in the U.S. District Court in 2005 to collect the
        unpaid
        principal balance, default interest and attorney fees for a note receivable,
        in
        total an amount in excess of $1,200,000, for stock issued. The defendants
        have
        sold the shares purchased with the note receivable. In response, on December
        27,
        2005 those shareholders and a related hedge fund, Pac Bay Financial, filed
        a
        countersuit against the Company and its directors and officers. That lawsuit,
        which is being heard by the same Judge as in the Company’s Note Default case
        listed above, alleges that oral misrepresentations were made to induce purchases
        of stock over an approximate one and one-half year period. Counter-plaintiffs
        seek $2 million in compensatory damages and $5 million in punitive damages.
        The
        basis for these damages claims is yet unknown. The company believes that
        they
        have meritorious defenses against this action, and will continue to vigorously
        defend it. The claim against the officers and directors is covered by directors
        and officers insurance to the extent that three of the individual officers
        and
        directors are covered. The insurance coverage pays for the defense costs
        only
        and provides no indemnity coverage. The parties are engaged in settlement
        negotiations which could result in the resolution of all pending claims.
        Subsequent to March 31, 2007, the Company received a payment of $100,000
        from
        the plaintiff against the principal balance of the said above note
        receivable.
   On
        November 23, 2005, the Company entered into Letter Agreement ("LOA") with
        George
        Foreman Enterprises, Inc. ("GFME") pursuant to which both parties would form
        a
        new limited liability company for the purpose of promoting the Company's
        zero
        calorie fat replacement food ingredient, Z Trim®. The parties did not reach any
        definitive Agreement as is required by the LOA. On May 9, 2006, the Company
        filed a lawsuit alleging breach of the Parties' nondisclosure agreement and
        trade secret misappropriation in the Circuit Court of the 19th Judicial
        District, Lake County, Illinois seeking damages and injunctive relief against
        GFME. On August 3, 2006 the court, based upon a finding that the Company
        has
        demonstrated a likelihood of success on the merits of the case, issued an
        order
        granting the Company a preliminary injunction enforcing the non-disclosure
        agreement between the parties. GFME subsequently appealed the preliminary
        injunction. The Appellate Court denied GFME’s appeal, and the injunctive order
        remains in place.
   On
        July
        17, 2006, George Forman Enterprises, Inc. filed a complaint against Z Trim
        Holdings, Inc. in the U.S. District Court seeking damages in excess of
        $70,000,000 for specific performance, breach of contract, promissory estoppel
        and unjust enrichment. The basis for all such claims is the underlying LOA,
        set
        forth above. Management believes that the allegations are frivolous and wholly
        without merit and will vigorously defend the claim.
   
 F-11
  **Z
            TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
            TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2007**
  **NOTE
        9** **-
        pending litigation (continued)**
   On
        July
        6, 2006, the Company filed a patent infringement suit in the United States
        District Court for the Western District of Wisconsin seeking unspecified
        damages
        and equitable relief against a manufacturer of a competing product. The case
        was
        dismissed by the court owing to a technicality and on March 20, 2007, the
        Company filed suit again No trial date has been set as of yet.
   On
        January 18, 2007, the Company was served with a complaint by Daniel Caravette
        for breach of contract and violation of the Illinois Wage Payment and Collection
        Act, seeking damages in excess of $1,000,000. Management believes that the
        allegations are frivolous and wholly without merit and will vigorously defend
        the claim.
   **NOTE
        10** **- RELATED PARTY TRANSACTIONS**
   As
        of
        March 31, 2006, the Company had an employee receivable of $9,000 from the
        Chief
        Executive Officer related to exercising his stock options in 2005. The amount
        was applied against a bonus pay in April 2006.
   As
        of
        March 31, 2006, the Company had an employee receivable of $45,900 from the
        Chief
        Financial Officer. In December 2005, the officer exercised 102,000 of his
        stock
        options at $.45 per share, or an aggregate of $45,900. The amount was applied
        against the officer’s net pay in April 2006.
   As
        of
        March 31, 2006, the Company had a stock subscription receivable of $20,000
        from
        the President related to exercising his stock options in 2005. The stock
        subscription receivable was paid in full on September 30, 2006 including
        $675 of
        interest.
   **NOTE
        1** **1-
        GUARANTEES**
  The
        Company from time to time enters into certain types of contracts that
        contingently require the Company to indemnify parties against third party
        claims. These contracts primarily relate to: (i) divestiture agreements,
        under
        which the Company may provide customary indemnifications to purchasers of
        the
        Company’s businesses or assets; (ii) certain real estate leases, under which the
        Company may be required to indemnify property owners for environmental and
        other
        liabilities, and other claims arising from the Company’s use of the applicable
        premises; and (iii) certain agreements with the Company's officers, directors
        and employees, under which the Company may be required to indemnify such
        persons
        for liabilities arising out of their employment relationship. The terms of
        such
        obligations vary. Generally, a maximum obligation is not explicitly stated.
        Because the obligated amounts of these types of agreements often are not
        explicitly stated, the overall maximum amount of the obligations cannot be
        reasonably estimated. Historically, the Company has not been obligated to
        make
        significant payments for these obligations, and no liabilities have been
        recorded for these obligations on its consolidated balance sheet as of March
        31,
        2007.
 
 In
        general, the Company offers a one-year warranty for most of the products
        it
        sold. To date, the Company has not incurred any material costs associated
        with
        these warranties.
 
  F-12
  **Z
            TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
            TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
            31, 2007**
  **NOTE
        12 - SEGMENT INFORMATION**
   The
        Company evaluates its reporting segments in accordance with SFAS No. 131,
        Disclosures about Segments of an Enterprise and Related Information. The
        Chief
        Executive Officer has been identified as the Chief Operating Decision Maker
        as
        defined by SFAS No. 131. The Chief Executive Officer allocates resources
        to each
        segment based on their business prospects, competitive factors, net sales
        and
        operating results.
   The
        Company’s structure includes three principal operating segments: (i) Food
        Product Development, (ii) Security Training and Products and (iii) E-tailer.
        The
        food product development segment owns the exclusive, worldwide license to
        Z
        Trim(TM). The Security training offers cost effective self-defense training
        courses and products with a uniquely targeted curriculum. The e-tailer segment
        is a distributor of pillows, blankets, and other bedding products. The Company
        also has other subsidiaries that do not meet the quantitative thresholds
        of a
        reportable segment.
   The
        Company reviews the operating segments’ income to evaluate performance and to
        allocate resources. Operating companies' income for the reportable segments
        excludes income taxes, minority interest and amortization of goodwill. Provision
        for income taxes is centrally managed at the corporate level and, accordingly,
        such items are not presented by segment. The segments' accounting policies
        are
        the same as those described in the summary of significant accounting
        policies.
   Intersegment
        transactions are recorded at cost.
   Summarized
        financial information of the Company’s results by operating segment is as
        follows:
 Three
                    Months endedMarch
                    31,**2007**
                
                2006Net
                    Revenue:Food
                    Product Development
                
                **$**
                **213,076**
                
                $
                22,831Personal
                    Safety Training and Products
                
                
                **609**
                
                
                3,527E-tailer
                
                
                **108,332**
                
                
                88,889Net
                    Revenue by Reportable Segment
                
                **$**
                **322,017**
                
                $
                115,247All
                    Other Operating Revenue
                
                
                **147**
                
                
                196Consolidated
                    Net Revenue
                
                **$**
                **322,164**
                
                $
                115,443Operating
                    Income (Loss):Food
                    Product Development
                
                **$**
                **(765,909**
                **)**
                $
                (534,843
                )Personal
                    Safety Training and Products
                
                
                **533**
                
                
                3,456E-tailer
                
                
                **14,487**
                
                
                10,190Operating
                    Loss by Reportable Segment
                
                **$**
                **(750,889**
                **)**
                $
                (521,197
                )All
                    Other Operating Loss
                
                
                **(984,114**
                **)**
                
                (2,190,199
                )Consolidated
                    Operating Loss
                
                **$**
                **(1,735,003**
                **)**
                $
                (2,711,396
                )Net
                    Income (Loss):Food
                    Product Development
                
                **$**
                **(766,136**
                **)**
                $
                (535,626
                )Personal
                    Safety Training and Products
                
                
                **533**
                
                
                3,456E-tailer
                
                
                **14,487**
                
                
                10,190Net
                    Loss by Reportable Segment
                
                **$**
                **(751,116**
                **)**
                $
                (521,980
                )All
                    Other Net Loss
                
                
                **(973,520**
                **)**
                
                (2,183,719
                )Consolidated
                    Net Loss
                
                **$**
                **(1,724,636**
                **)**
                $
                (2,705,699
                )
 F-13
 
 **Z
          TRIM HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
          TO INTERIM UNADUITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
          31, 2007**
 **NOTE
        12 - SEGMENT INFORMATION (Continued)**
  March
                    31,Total
                    Assets:
                
                **2007**
                
                2006Food
                    Product Development
                
                **$
                    6,365,973**
                
                $
                    5,994,451Personal
                    Safety Training and Products
                
                **4,112**
                
                468E-tailer
                
                **98,407**
                
                64,609**6,468,492**
                
                
                6,059,528All
                    other segments
                
                
                **4,675,032**
                
                
                5,113,571Consolidated
                    assets
                
                **$**
                **11,143,524**
                
                $
                11,173,099
  **NOTE
        13 - SUBSEQUENT EVENTS**
   On
        May 1,
        2007, the Board of Directors appointed Alan Orlowsky as the Company’s Chief
        Financial Officer (CFO). Mr. Orlowsky has served as a member of the Company’s
        Board of Directors and was the Chairman of the Company’s Audit Committee. He
        resigned those positions as of April 30, 2007. The former CFO resigned his
        position, and remained employed as the Company’s Vice President and on the
        Company’s Board of Directors.
   The
        Board
        of Directors has appointed Brian Israel as the new audit committee chair
        of the
        Company to fill the vacancy created by Mr. Orlowsky’s departure.
   
 F-14